Research On The Impacts Of Global Financial Cycle On Extreme Cross-Border Capital Flows

With the deepening of the global financial integration,the linkage of financial conditions of various countries has gradually enforced,and the financial variables represented by stock prices of various countries have coordinated changes,namely the "global financial cycle".Among the many driving factors of abnormal cross-border capital flows,global factors play a significant role.Among them,the global financial cycle,as a concise summary and summary of the changes in the international economic and financial situation,exerts an important influence on cross-border capital flows,especially in the period when the system is faced with financial risk pressure,the global financial cycle becomes the first leading factor of abnormal cross-border capital flows.The global financial cycle will magnify the volatility of a country’s capital flow,which will lead to a country’s frequent capital surge and disruption unrelated to domestic fundamentals.According to the IMF’s 2022 Global Financial Stability Report,risks to global financial stability have increased as the global economy has fallen into recession with high inflation and disorderly tightening financial conditions.At present,the global economic and political situation is becoming increasingly grim.The US Federal Reserve has raised interest rates aggressively,major economies have tightened monetary policies,and the global financial cycle has declined.Effectively preventing and defusing external shock risks has become the key task of foreign exchange management.Therefore,it is of great significance to study the impact of global financial cycle on extreme crossborder capital flows in response to external financial shocks and to prevent the risk of abnormal cross-border capital flows.This paper firstly reviews the logical relationship between the global financial cycle and the extreme cross-border capital flows.Secondly,the Markov regional transfer model is constructed to divide the global financial cycle.Based on the data of 49 economies from the third quarter of 2005 to the fourth quarter of 2020,the current situation of the global financial cycle and cross-border capital extreme flows is analyzed statistically.Thirdly,Logit model is constructed to discuss the impact of global financial cycle on capital surge,stop,flight and retrenchment.On this basis,the regulatory effect model is used to explore the regulatory effects of different driving and pulling factors in the global financial cycle and cross-border extreme capital flows.Finally,based on the TVP-VAR model,this paper studies the time-varying impact of global financial cycle on the extreme cross-border capital flows in China.The main conclusions are as follows: Firstly,in the expansion of global financial cycle,cross-border capital flight is significant;in the recession of global financial cycle,the probability of capital stop and retrenchment increases,extreme crossborder capital flows have a pro-cyclical nature.Extreme capital flows in both developed and developing economies are characterized by the above pro-cyclical characteristic.Compared with portfolio investment and other investments,direct investment is least affected by the downturn of the global financial cycle.Secondly,from the perspective of global factors,abundant global liquidity and improving global economic growth can alleviate the extreme cross-border capital flows in the downturn of global financial cycle.From the perspective of a country’s macroeconomic fundamentals,higher economic growth can effectively mitigate the impact of the global financial cycle.High domestic interest rates will accelerate capital flight in an expanding global financial cycle.From the perspective of a country’s economic system and policy,the adjustment effects of capital account opening,financial development and exchange rate regime in different types of economies are heterogeneous.Thirdly,the global financial cycle has an important explanatory power for the changes of China’s cross-border capital flows,which plays a dominant role in global factors.The impact of global financial cycle on China’s cross-border capital flow is time-varying.The short-term impact on capital inflow shows a downward trend in fluctuations,while the impact on capital outflow becomes unstable after 2016.In the face of the impact of the global financial cycle,China’s cross-border capital flows has a positive response in the short term.Compared with 2008 and 2016,the impact of the global financial cycle in 2020 has decreased.According to the above research contents and conclusions,this paper provides practical basis for pro-cyclical cross-border capital extreme flows,and provides targeted policy suggestions for counter-cyclical regulation and prevention of cross-border capital extreme flows risks.